Does the organic sector have its own consolidation issue?
Organic commodities grown in the U.S. have developed a stable market in large part thanks to strategic advertising and streamlined operations. Yet, the bulk of organic customers still reside in relatively small pockets of America. A significant part of the West Coast, Northeast, Great Lakes region and a collection of communities in South Carolina and Pennsylvania make up concentrated hubs of organic buyers. Understanding why organic products sell well in these areas can shed light on growth potential nationwide.
The organic sector is a $9.6 billion dollar market. Over the last 5 years it has increased an average of $1 billion dollars a year. When it comes to organic products grown and manufactured in America, a 2022 study that examined county-by-county sales showed that 40% of organic purchases were made in west coast counties. While not all states track organic sales by county, the study revealed that consolidation exists. California and the Pacific Northwest certainly lead the way in organic sales, but portions of the Midwest and East Coast had collections of counties with high organic sales as well. Health conscious consumers, social norms, price and availability all play a role in the regional health of the organic market.
Health Conscious Consumers
One of the biggest trends we’ve been aware of is a change in the average age and mindset of consumers. Once the term ‘organic’ was not mainstream. Now, the concept has been around long enough that a larger population of consumers makes purchasing decisions based on their values around organic food. Kids who were raised in households that purchased organic products for their health benefits now make up a bigger percentage of grocery store shoppers.
Healthy food appeals to all demographics of consumers and is strongly associated with organics. Perceived value influences spending habits. Despite varying household income brackets, race, or rural or urban location, the organic market continues to grow because purchasing these products is considered a long term investment in overall physical wellbeing.
Non-organic sales still dwarf organic sales. However, a $1 billion sales increase per year is significant growth. In fact, demand for organic products is a huge part of this sector’s expansion from produce into meat and dairy. Based on the 2022 study, we can speculate that more millennial, health conscious consumers live on the West Coast, Northeast, Midwest and Mid-Atlantic. They are buying not only organic produce, but organically raised animal products.
Social Norms
Another shifting trend has been the adoption of organic products by conventional grocery stores. Even a decade ago organic commodities would have been considered specialty items and would have been found in stores like natural groceries or wellness shops. Today, you can shop for organic cauliflower right next to non-organically grown cauliflower in your local supermarket. However, with lower priced conventional products right next to organic products, it is unclear how sales of organic products will fare.
It is more convenient for shoppers to make organic purchases and approximately 80% of American homes purchase some type of organic product. This percentage is the result of a shifting social norm. As the social norm becomes strong the organic market could continue to grow. The organic sector has a foot hold around the Great Lakes, South Carolina and Pennsylvania and much more than that along the West Coast because shopping for organic food is the “normal” way of living. These pockets may expand, if organic becomes more normal rather than see a brand new pocket of organic sales popup somewhere else.
Price & Availability of Organic Products
While consumer spending reflects values, price still matters. Buyers have to be able to afford organic products. More organic offerings by large retailers like Costco, Walmart, and Target have driven the price of organics down and increased access for consumers.
In states with the most organic sales per county, organic acreage tended to increase while pasture or farmland using traditional practices decreased. More organic options are available in these states which strongly contributes to them ranking so high in sales. In fact, while 80% of American homes purchase organic products, 68% of those products come from California who leads in sales and production of commodities.
These states also have strong direct to consumer markets. From farmers markets to online shops, buying directly from the farmer or rancher is a typical way of purchasing organic food. The model isn’t as mainstream in other parts of the U.S. In California, you can shop for organic food at a grocery store, at your local farmer’s market, or even down the road from your neighborhood farm or ranch. Within a small radius you can find organically raised cows, chickens, and pigs as well as organic produce and products like chips, noodles and crackers. You’re less likely to find the same availability or variety of options in eastern Nevada or west Texas.
Whole Foods Seeks To Increase Consolidation
As the organic sector grows so too does the potential for increased consolidation of suppliers. Narrowing price gaps between traditional and organic products has already led to more grocery stores being willing to develop their own organic lines. These products are not often sourced from small farmer’s market operations that have done much of the legwork to build a robust consumer base, but instead from large corporate organic farms.
Supplier consolidation would work to bring more organic products to organically sparse regions of the nation and keep it affordable. However, the organic sector fears that this type of consolidation will hurt the industry which has largely been built on the concept of small regional farms supplying local communities with organic options. The added value of the organic sector has long been that it provides regional food supply options.
If small family farms win out then the organic sector will likely continue to grow much as it has up until now. Availability and perceived value will play important roles in its expansion into other states. On the other hand, demand appears strong across the nation which could prompt big suppliers like Whole Foods to buy out small farms and absorb them into existing operations. What do buyers value the most; knowing their local farmer or knowing their product was organically cultivated?
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